The UK government has proposed a number of reforms to Companies House, the official registrar of companies in the UK. These reforms should improve the transparency and accountability of companies, making it easier for law enforcement agencies to investigate financial crime. Whilst it might mean some extra admin, it should paint a more transparent picture of a business, helping people make more informed decisions about who they do business with.
There are 3 main proposed changes:
- Enhanced Identity Verification helps to deter criminals from using companies for illegal purposes.
- Compulsory filing of profit and loss accounts for all small companies, making it easier for investors, customers and suppliers to assess a company’s financial health.
- Digital filing only makes it easier for Companies House to process filings and simultaneously help reduce fraud.
Let’s look at the changes in more detail and what they can mean for small businesses.
When and why are the changes happening?
Since February 2022, the UK Government has made clear its intention to expand the role and powers of Companies House to address the increasing misuse of UK corporate identities and improve the accuracy of filed data. The changes form part of the Economic Crime and Corporate Transparency (ECCT) Bill. As the ECCT is still making its way through Parliament, the changes are still at the proposal stage, so the exact timings aren’t yet known.
The vision of the changes for Companies House is to create a single, cost-effective, sustainable way of filing accounts, which will be secure, transparent and traceable.
Enhanced Identity Verification
One of the most significant proposed changes is introducing an identity verification process for all company directors, People with Significant Control (PSC), and those filing on behalf of a company. This move is designed to reduce the risk of fraud and ensure accurate information is provided to Companies House.
Implications for Small Businesses: While identity verification may seem like an added layer of bureaucracy, the intention is to protect businesses. By ensuring that only legitimate individuals can register or make changes to a company’s details, small businesses are safeguarded from potentially fraudulent activities. However, it also means that small businesses need to make sure their documentation is always up-to-date and accurate.
Compulsory filing of profit and loss accounts for all small companies
Currently, small companies don’t have to file profit and loss accounts with Companies House. This change would mean that all small companies will be required to file this information annually, making it easier for investors, customers and suppliers to assess a company’s financial health.
Implications for Small Businesses: This change has pros and cons for small business owners. For some, it may mean more paperwork and potential costs. They might have to spend more on accounting help, and competitors could see how they’re doing financially. While it may make things clearer and fairer for everyone, it also means less privacy for the businesses’ earnings.
Currently, companies can file their accounts with Companies House in paper form using web-based systems or software. Under the proposed reforms, all filings would need to be made digitally. That will make it easier for Companies House to process filings and help to reduce fraud. Companies House has already begun work to move to software-only accounts filing, which will see the removal of all other filing routes for accounts.
Implications for Small Businesses: The move to digital filing could save small businesses time and money. However, it’s important to ensure they have access to the technology and support they need to comply with the new requirements.
The overall impact on small businesses
These reforms are likely to significantly impact small businesses in the UK, particularly having to file profit and loss accounts which could add more administrative burden. But, on the plus side, the increased transparency may help attract investors and customers, making it easier for small businesses to raise finance.
Overall, we believe the proposed Companies House reforms will have a positive impact on small businesses in the UK. They will improve transparency, accountability and security, making it easier for small businesses to raise finance and generate growth.
What can small businesses do to prepare for the reforms?
Nothing will change until after the ECCT Bill receives royal assent, so you don’t need to do anything differently yet. But preparation is key, so, here are our tips on how small businesses can get ready for the reforms:
- Keep good records. Keep good records of your financial transactions, making it easier to prepare the required accounts for filing. It’ll also demonstrate compliance with the new regulations.
- Get familiar with the new requirements. Get to know the new requirements by reading the guidance published by Companies House.
- Seek professional advice. If you need help complying with the new requirements, seek professional advice from an accountant or solicitor.
Following these tips will help you stay on track as the changes come into play. From keeping your records to advice on the changes and what they mean for you and your business, we’re always here to help.